BofA Merrill Lynch May Fund Manager Survey finds investors are bullish; macro expectations of high growth and low inflation at record high

China replaces European disintegration as the most commonly cited tail risk for the first time since January 2016, with 31% of global fund managers citing Chinese credit tightening as the biggest risk in the market

Investors’ macro expectations find global economy to be just right, with a record high 34% citing a Goldilocks scenario of high growth and low inflation

China replaces European disintegration as the most commonly cited tail risk for the first time since January 2016, with 31% of global fund managers citing Chinese credit tightening as the biggest risk in the market

Long Nasdaq is seen as the most crowded trade for the first time, knocking long U.S. dollar off the top spot after five months; despite this, net 23% of investors still say the USD is overvalued

Profit expectations are at a three-year high as net 56% of respondents say global profits will improve over the next 12 months

FMS cash levels remain unchanged from April at 4.9%, still above the 10-year average of 4.5%

Investors’ views on valuation continue to vary by region: net 82% of fund managers think the U.S. is the most overvalued region, near April’s all-time high; meanwhile, Eurozone and EM equities are seen as undervalued, at net 20% and net 44% respectively

Net 59% of investors are overweight Eurozone equities, up from net 48% overweight in April and the highest allocation since March 2015

Japan equity allocation fell for the second month to a net 12% overweight as investors increase their allocation into European equities

“Investor sentiment is bullish,” said Michael Hartnett, chief investment strategist. “But irrationality is not yet visible despite all-time highs in credit and equity markets, robust global EPS and a benign French election result.”
Ronan Carr, European equity strategist, added that, “Allocation to Eurozone equities is at its third highest level on record. The recent outperformance seems due for a pause, especially versus the U.S.”

Focus

Note EURO STOXX 50® Index implied repo trading at Eurex

This research paper focuses on the inseparable relationship between implied repo rates and equity index total return swaps. Written by Stuart Heath, Director Equity & Index R&D at Eurex, it covers the various aspects and calculations of both repo rates and the (...)